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How to Calculate Capital Gains Tax Owing

Original post by Matt McGew of Demand Media

The Internal Revenue Service requires you to pay tax on all capital gains you earn. A capital gain is the profit resulting from the sale of capital assets such as real estate, stocks and mutual funds, or collectibles. The IRS also allows you to deduct capital losses from your capital gains prior to calculating your tax liability. You can manually, calculate the capital gains tax owing to the IRS for the tax year.

Contents

Step 1

Determine your total capital gains for the tax year. In this calculation do not include capital gains from selling Section 1202 qualified small business stock, gains from selling collectibles or gains from selling Section 1250 real property. For example, assume your capital gains for the tax year are $100,000.

Step 2

Determine your total capital losses for the tax year. For example, assume your total capital losses for the tax year are $50,000

Step 3

Subtract the capital loses from the capital gains. Continuing the same example, $100,000 - $50,000 = $50,000.

Step 4

Multiply the figure from Step 3 by 15 percent, or 0.15. Continuing the same example, $50,000 x 0.15 = $7,500.

Step 5

Determine the amount of capital gains from selling Section 1202 qualified business stock. For example, assume you have $5,000 in gains from selling Section 1202 qualified business stock. Multiply this figure by 28 percent. Continuing the same example, $5,000 x 0.28 = $1,400.

Step 6

Determine the amount of capital gains from selling collectibles. Assume you have $10,000 in gains from collectibles. Multiply this figure by 28 percent. Continuing the same example, $10,000 x .28 = $2,800.

Step 7

Determine the amount of capital gains from selling Section 1250 real property. Assume you have $10,000 in gains from selling Section 1250 real property. Multiply this figure by 25 percent. Continuing the same example, $10,000 x .25 = $2,500.

Step 8

Add the capital gains tax calculations from Steps 4 through 7. Continuing the same example, $7,500 + $1,400 + $2,800 + $2,500 = $14,200. This figure represents the capital gains tax owing for the tax year.


                   

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About the Author

Since 1992 Matt McGew has provided content for on and offline businesses and publications. Previous work has appeared in the "Los Angeles Times," Travelocity and "GQ Magazine." McGew specializes in search engine optimization and has a Master of Arts in journalism from New York University.


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